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Revenues from Contracts | 12 Months Ended
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Dec. 31, 2018
Revenue from Contract with Customer [Abstract] |
Revenues from Contracts | Revenues from Contracts As indicated in Notes 1 and 3, effective January 1, 2018, we adopted ASC 606 under the modified retrospective transition approach. As a result, for periods prior to 2018, revenue continues to be presented based on prior guidance. Summarized below is our policy for recognizing revenue under ASC 606, as well as the various disclosures required by ASC 606. Performance Obligations - Certain of our contracts are comprised of multiple deliverables, which can include hardware and software components, installation, maintenance, and extended warranties. For these contracts, we evaluate whether these deliverables represent separate performance obligations as defined by ASC 606. In some cases, a customer contracts with us to integrate a complex set of tasks and components into a single project or capability (even if the single project results in the delivery of multiple units). Hence, the entire contract is treated as a single performance obligation. In contrast, we may promise to provide distinct goods or services within a contract, in which case we separate the contract into more than one performance obligation. If a contract is separated into more than one performance obligation, we allocate the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. In cases where we sell standard products with observable standalone selling prices, these selling prices are used to determine the standalone selling price. In cases where we sell a customized customer specific solution, we typically use the expected cost plus margin approach to estimate the standalone selling price of each performance obligation. Sales taxes and other usage-based taxes are excluded from revenue. Remaining performance obligations represent performance obligations that have yet to be satisfied. As a practical expedient, we do not disclose performance obligations that are (i) part of a contract that has an original expected duration of less than one year (this encompasses substantially all contracts with customers in the HVAC and Detection and Measurement reportable segments) and/or (ii) satisfied in a manner consistent with our right to consideration from the customer (i.e., revenue is recognized as value is transferred). Performance obligations for contracts with an original duration in excess of one year that have yet to be satisfied as of the end of a period primarily relate to our large process cooling systems and large South African projects, as well as certain of our bus fare collection systems. As of December 31, 2018, the aggregate amount allocated to remaining performance obligations after the effect of practical expedients was $97.2. We expect to recognize revenue on approximately 50% and 70% of the remaining performance obligations over the next 12 and 24 months, respectively, with the remaining recognized thereafter. Options - We offer options within certain of our contracts to purchase future goods or services. To the extent the option provides a material right to a future benefit (i.e., future goods and services at a discount from the relative standalone selling price), we separate the material right as a performance obligation and adjust the standalone selling price of the other performance obligations within the contract. When determining the relative standalone selling price of the option, we first determine the incremental discount that the customer would receive by exercising the option and then adjust that value based on the probability of option exercise (based, where possible, on historical experience). Revenue is recognized for the option as either the option is exercised or when it expires. Contract Combination and Modification - We assess each contract at its inception to determine whether it should be combined with other contracts for revenue recognition purposes. When making this determination, we consider factors such as whether two or more contracts with a customer were negotiated at or near the same time or were negotiated with an overall profit objective. Contracts are sometimes modified for changes in contract specifications, scope, or price (or a combination of these). Contract modifications for goods or services that are not distinct within the context of the contract (generally associated with specification changes for certain product lines within our Engineered Solutions reportable segment and “All Other” category of operating segments) are accounted for as part of the existing contract. Contract modifications for goods or services that are distinct (i.e., adding or subtracting distinct goods or services) are accounted for as either a termination of the existing contract and the creation of a new contract (where the goods or services are not priced at their standalone selling price), or the creation of separate contract (where the goods or services are priced at their standalone selling price). Variable Consideration - We determine the transaction price for each contract based on the consideration we expect to receive for the products or services being provided under the contract. For contracts where a portion of the price may vary, we estimate the variable consideration at the amount to which we expect to be entitled, which is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur. We analyze the risk of a significant revenue reversal and, if necessary, constrain the amount of variable consideration recognized in order to mitigate this risk. Variable consideration primarily pertains to late delivery penalties, unapproved change orders and claims (levied by us and /or against us), and index-based pricing. Actual amounts of consideration ultimately received may differ from our estimates. If actual results vary from our estimates, we will adjust these estimates, which would affect revenue and earnings in the period such variances become known. As noted above, the nature of our contracts gives rise to several types of variable consideration, including unapproved change orders and claims. We include in our contract estimates additional revenue for unapproved change orders or claims against the customer when we believe we have an enforceable right to the unapproved change order or claim, the amount can be reliably estimated, and the above criteria have been met. In evaluating these criteria, we consider the contractual/legal basis for the claim, the cause of any additional costs incurred, the reasonableness of those costs, and the objective evidence available to support the claim. These estimates are also based on historical award experience. At December 31, 2018, our recorded cumulative revenues related to the large power projects in South Africa included approximately $37.9 related to claims and unapproved change orders. See Note 14 for additional details on our large power projects in South Africa. Returns, Customer Sales Incentives and Warranties - We have certain arrangements that require us to estimate, at the time of sale, the amounts of variable consideration that should be excluded from revenue as (i) certain amounts are not expected to be collected from customers and/or (ii) the product may be returned. We principally rely on historical experience, specific customer agreements, and anticipated future trends to estimate these amounts at the time of shipment and to reduce the transaction price. These arrangements include volume rebates, which are estimated using the most likely amount method, as well as early payment discounts and promotional and advertising allowances, which are estimated using the expected value method. We primarily offer assurance-type standard warranties that the product will conform to published specifications for a defined period of time after delivery. These types of warranties do not represent separate performance obligations. We establish provisions for estimated returns and warranties primarily based on contract terms and historical experience, using the expected value method. Certain businesses offer extended warranties, which are considered separate performance obligations. Contract Costs - We have elected to apply the practical expedient provided under ASC 606 which allows an entity to expense incremental costs of obtaining or fulfilling a contract when incurred if the amortization period of the asset that the entity otherwise would have recorded is one year or less. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of products sold. The net asset recorded for incremental costs incurred to obtain or fulfill contracts, after consideration of the practical expedient mentioned above, is not material to our consolidated financial statements. Nature of Goods and Services, Satisfaction of Performance Obligations, and Payment Terms Our HVAC product lines include package cooling towers, residential and commercial boilers, and comfort heating and ventilation products. Performance obligations for our HVAC product lines relate primarily to the delivery of equipment and components, with satisfaction of these performance obligations occurring at the time of shipment or delivery (i.e., control is transferred at a point in time). The typical length of a contract is one to three months and payment terms are generally 15 to 60 days after shipment to the customer. Our detection and measurement product lines include underground pipe and cable locators, inspection and rehabilitation equipment, bus fare collection systems, signal monitoring, and obstruction lighting. Performance obligations for these product lines relate to delivery of equipment and components, installation and other short-term services, long-term maintenance and software subscription services. Performance obligations for equipment and components generally are satisfied at the time of shipment or delivery (i.e., control is transferred at a point in time). Performance obligations for installation and other short-term services are satisfied over time as the installation or service is performed. Performance obligations for maintenance and software subscription services are satisfied over time, with the related revenue recorded evenly throughout the contract service period as this method best depicts how control of the service is transferred. Payment terms for equipment and components are typically 30 to 60 days after shipment or delivery, while payment for services typically occurs at completion for shorter-term engagements (less than three months in duration) and throughout the service period for longer-term engagements (generally greater than three months in duration). These product lines have varying contract lengths ranging from one to eighteen months (with the longer term contracts generally associated with our bus fare collection systems and signal monitoring products lines), with the typical duration being one to three months. Our engineered solutions product lines include medium and large power transformers and process cooling equipment. Performance obligations for these product lines relate to delivery of equipment and components, construction and reconstruction of cooling towers and other components, and providing installation, replacement/spare parts, and various other services. For these product lines, our customers typically contract with us to provide a customer-specific solution. The customer typically controls the work in process due to contractual termination clauses whereby we have an enforceable right to recovery of cost incurred including a reasonable profit for work performed to date on products or services that do not have an alternative use to us. Additionally, certain projects are performed on customer sites such that the customer controls the asset as it is created or enhanced. As such, performance obligations for these product lines are generally satisfied over time, with the related revenue recorded based on the percentage of costs incurred to date for each contract to the estimated total costs for such contract at completion, as this method best depicts how control of the product or service is being transferred. Revenue for sales of certain engineered components and all replacement/spare parts is recognized upon shipment or delivery (i.e., at a point in time). The length of customer contract is generally 6 to 12 months for our power transformers business and 6 to 18 months for our process cooling business. Payments on longer-term contracts are generally commensurate with milestones defined in the related contract, while payments for the replacement/spare parts contracts typically occur 30 to 60 days after delivery. Our remaining (“All Other”) product lines include primarily heat exchangers and two large power plant contracts in our South African business. Performance obligations for these product lines relate to delivery of equipment and components and construction, installation, and various other services. For these product lines, our customers typically contract with us to provide a customer-specific solution. The customer typically controls the work in process due to contractual termination clauses whereby we have an enforceable right to recovery of cost incurred including a reasonable profit for work performed to date on products or services that do not have an alternative use to us. Additionally, certain projects are performed on customer sites such that the customer controls the asset as it is created or enhanced. As such, performance obligations for these product lines are generally satisfied over time, with the related revenue recorded based on the percentage of costs incurred to date for each contract to the estimated total costs for such contract at completion, as this method best depicts how control of the product or service is being transferred. The length of customer contract is generally 6 to 18 months for our heat exchanger business. The large contracts in our South African business relate to the construction of two large power plants that have a length in excess of 10 years. Payments for these product lines are generally commensurate with milestones defined in the related contract. Customer prepayments, progress billings, and retention payments are customary in certain of our project-based businesses, generally for our engineered solutions and “All Other” product lines and, to a lesser extent, our detection and measurement product lines. Customer prepayments, progress billings, and retention payments are not considered a significant financing component because they are intended to protect either the customer or ourselves in the event that some or all of the obligations under the contract are not completed. Additionally, most contract assets are expected to convert to accounts receivable, and contract liabilities are expected to convert to revenue, within one year. As such, after applying the practical expedient to exclude potential financing components that are less than one year in duration, we do not have any such financing components. Disaggregated Revenues We disaggregate revenue from contracts with customers by major product line and based on the timing of recognition for each of our reportable segments and our group of other operating segments, as we believe such disaggregation best depicts how the nature, amount, timing, and uncertainty of our revenues and cash flows are effected by economic factors, with such disaggregation presented below for the year ended December 31, 2018:
|  | Year Ended December 31, 2018
Reportable Segments and All Other |  | HVAC |  | Detection and Measurement |  | Engineered Solutions |  | All Other |  | Total
Major product lines |  |  |  |  |  |  |  |  |  |
Cooling |  | $ | 281.7 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 281.7 |
Boilers, comfort heating, and ventilation |  | 300.4 |  |  | — |  |  | — |  |  | — |  |  | 300.4 |
Underground locators and inspection and rehabilitation equipment |  | — |  |  | 159.1 |  |  | — |  |  | — |  |  | 159.1 |
Signal monitoring, obstruction lighting, and bus fare collection systems |  | — |  |  | 161.8 |  |  | — |  |  | — |  |  | 161.8 |
Power transformers |  | — |  |  | — |  |  | 373.8 |  |  | — |  |  | 373.8 |
Process cooling equipment, services, and heat exchangers |  | — |  |  | — |  |  | 163.2 |  |  | 49.5 |  |  | 212.7 |
South African projects |  | — |  |  | — |  |  | — |  |  | 49.1 |  |  | 49.1 |
|  | $ | 582.1 |  |  | $ | 320.9 |  |  | $ | 537.0 |  |  | $ | 98.6 |  |  | $ | 1,538.6 |
Timing of Revenue Recognition |  |  |  |  |  |  |  |  |  |
Revenues recognized at a point in time |  | $ | 582.1 |  |  | $ | 307.3 |  |  | $ | 61.5 |  |  | $ | 5.1 |  |  | $ | 956.0 |
Revenues recognized over time |  | — |  |  | 13.6 |  |  | 475.5 |  |  | 93.5 |  |  | 582.6 |
|  | $ | 582.1 |  |  | $ | 320.9 |  |  | $ | 537.0 |  |  | $ | 98.6 |  |  | $ | 1,538.6 |
Contract Balances Our customers are invoiced for products and services at the time of delivery or based on contractual milestones, resulting in outstanding receivables with payment terms from these customers (“Contract Accounts Receivable”). In some cases, the timing of revenue recognition, particularly for revenue recognized over time, differs from when such amounts are invoiced to customers, resulting in a contract asset (revenue recognition precedes the invoicing of the related revenue amount) or a contract liability (payment from the customer precedes recognition of the related revenue amount). Contract assets and liabilities are generally classified as current. On a contract-by-contract basis, the contract assets and contract liabilities are reported net within our consolidated balance sheet. Our contract balances consisted of the following as of December 31, 2018 and January 1, 2018:
Contract Balances | December 31, 2018 |  | January 1, 2018 (1) |  | Change
Contract Accounts Receivable (2) | $ | 263.9 |  |  | $ | 222.9 |  |  | $ | 41.0 |
Contract Assets | 91.2 |  |  | 70.7 |  |  | 20.5 |
Contract Liabilities - current | (79.5 | ) |  | (86.9 | ) |  | 7.4 |
Contract Liabilities - non-current (3) | (2.1 | ) |  | — |  |  | (2.1 | )
Net contract balance | $ | 273.5 |  |  | $ | 206.7 |  |  | $ | 66.8 |
_____________________ (1) See Note 3 for the impact of the change at January 1, 2018 as a result of the adoption of ASC 606. (2) Included in “Accounts receivable, net” within the accompanying consolidated balance sheet. (3) Included in “Other long-term liabilities” within the accompanying consolidated balance sheet. The $66.8 increase in our net contract balance from January 1, 2018 to December 31, 2018 was due primarily to revenue recognized during the period, partially offset by cash payments received from customers during the period. During 2018, we recognized revenues of $67.8 related to our contract liabilities at January 1, 2018. Impact of ASC 606 Adoption Summarized below is a comparison of our consolidated statement of operations and comprehensive income for the year ended December 31, 2018 and consolidated balance sheet as of December 31, 2018 as prepared under the provisions of ASC 606 to a presentation of these financial statements under the prior revenue recognition guidance. As previously discussed, the most significant impact of adopting ASC 606 relates to our power transformer business where, under ASC 606, revenues for power transformers are now being recorded over time versus at a point in time under the prior revenue recognition guidance. The initial transition to ASC 606 resulted in a reduction of inventory and deferred revenue (previously presented within “Accrued expenses”) and an increase to contract assets, as indicated in Note 3. Contract assets and contract liabilities are now separately presented within our consolidated balance sheet (previously included in “Accounts receivable, net” and “Accrued expenses”, respectively). Additionally, and as noted below, the difference in revenue and earnings under prior revenue recognition guidance during the year ended December 31, 2018 is due primarily to the timing of power transformer deliveries.
| Year ended December 31, 2018
Consolidated statement of operations and comprehensive income | Reported |  | Effect of ASC 606 Adoption |  | Under Prior Revenue Recognition Guidance
Revenues | $ | 1,538.6 |  |  | $ | (14.2 | ) |  | $ | 1,524.4 |
Cost of products sold | 1,127.9 |  |  | (11.6 | ) |  | 1,116.3 |
Selling, general and administrative | 292.6 |  |  | (0.6 | ) |  | 292.0 |
Operating income | 107.6 |  |  | (2.0 | ) |  | 105.6 |
Income from continuing operations before income taxes | 79.6 |  |  | (2.0 | ) |  | 77.6 |
Income tax provision | (1.4 | ) |  | 0.5 |  |  | (0.9 | )
Income from continuing operations | 78.2 |  |  | (1.5 | ) |  | 76.7 |
Net income | $ | 81.2 |  |  | $ | (1.5 | ) |  | $ | 79.7 |
Comprehensive income | $ | 76.0 |  |  | $ | (0.5 | ) |  | $ | 75.5 |
Basic income per share of common stock: |  |  |  |  |
Income from continuing operations | $ | 1.82 |  |  | $ | (0.04 | ) |  | $ | 1.78 |
Net income per share | $ | 1.89 |  |  | $ | (0.04 | ) |  | $ | 1.85 |
Diluted income per share of common stock: |  |  |  |  |
Income from continuing operations | $ | 1.75 |  |  | $ | (0.03 | ) |  | $ | 1.72 |
Net income per share | $ | 1.82 |  |  | $ | (0.03 | ) |  | $ | 1.79 |
| As of December 31, 2018
Consolidated balance sheet | Reported |  | Effect of ASC 606 Adoption |  | Under Prior Revenue Recognition Guidance
Accounts receivable, net | $ | 269.1 |  |  | $ | 33.2 |  |  | $ | 302.3 |
Contract assets | 91.2 |  |  | (91.2 | ) |  | — |
Inventories, net | 128.8 |  |  | 52.1 |  |  | 180.9 |
Other current assets | 40.5 |  |  | 4.1 |  |  | 44.6 |
Total current assets | 598.4 |  |  | (1.8 | ) |  | 596.6 |
Deferred income taxes | 24.4 |  |  | 1.4 |  |  | 25.8 |
TOTAL ASSETS | $ | 2,057.5 |  |  | $ | (0.4 | ) |  | $ | 2,057.1 |
Contract liabilities | $ | 79.5 |  |  | $ | (79.5 | ) |  | $ | — |
Accrued expenses | 183.7 |  |  | 82.0 |  |  | 265.7 |
Total current liabilities | 470.2 |  |  | 2.5 |  |  | 472.7 |
Other long-term liabilities | 817.3 |  |  | 1.6 |  |  | 818.9 |
Total long-term liabilities | 1,172.4 |  |  | 1.6 |  |  | 1,174.0 |
Retained deficit | (650.1 | ) |  | (5.5 | ) |  | (655.6 | )
Accumulated other comprehensive income | 244.9 |  |  | 1.0 |  |  | 245.9 |
Total equity | 414.9 |  |  | (4.5 | ) |  | 410.4 |
TOTAL LIABILITIES AND EQUITY | $ | 2,057.5 |  |  | $ | (0.4 | ) |  | $ | 2,057.1 |
Consolidated statement of cash flows - The impact of ASC 606 on our consolidated statement of cash flows for the year ended December 31, 2018 is not presented, as the only impact to operating cash flows related to changes to net income and certain working capital amounts (no change to total operating cash flows) and there is no impact to investing or financing cash flows.

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- Definition The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI http://asc.fasb.org/topic&trid=49130388 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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